Kenya’s onerous rules could block Essar sale

International / 2 April 2014, 08:00am

Duncan Miriri Nairobi

Conditions set by Kenya’s telecoms regulator for the sale of Essar’s cellular network assets to Safaricom and Airtel were “onerous” and could scupper the deal, Safaricom chief executive Bob Collymore said on Monday.

Safaricom, which has two-thirds of Kenya’s subscribers, teamed up with second-largest operator Airtel in a joint bid worth $100 million (R1.1 billion) for the assets of Yu Mobile, the third operator owned by India’s Essar Telecom, which is quitting Kenya.

The Communications Commission of Kenya approved the deal on Friday with 12 conditions, including that Safaricom and Airtel shared their infrastructure with other players.

“I would say the terms are pretty onerous,” Collymore said, saying there was a less than 50 percent chance that the deal would now go through.

“I can’t afford to be keeping my finance and legal team tied up in this thing, so if we don’t have a clear way forward in the next three weeks, then we are walking away from it,” he said, adding that tough regulations could deter other investors.

Under the deal, Safaricom would get base stations and other infrastructure to improve its network quality, while Airtel would get Yu’s 2.7 million subscribers, about 7.1 percent of the market. Airtel had a 17.6 percent share in September last year.

Collymore said the main rationale for Safaricom, which is 40 percent owned by Britain’s Vodafone, was to acquire additional spectrum. “Spectrum is a rare commodity for operators.”

Safaricom, which has 66.5 percent of the country’s subscribers and the biggest share of total traffic, has the same amount of wireless spectrum as others, causing the network quality to suffer, especially in Nairobi, where there are more users.

Kenya’s cellular market could face further changes. Telkom Kenya, controlled by French firm Orange, the smallest operator by users, is reviewing its business.

Collymore said a price war and lowering of the rate that operators pay each other for calls ending on their network, called the mobile termination rate, had eaten into profits. “The market failure has been driven by low termination rates. These are lower than anywhere else in Africa… It is not sustainable.”

Safaricom will keep investment steady at 27 billion shillings (R3.2bn) in the financial year that started last month, mainly in network infrastructure to keep up with a doubling of data usage in the past 12 months and a 30 percent rise in voice traffic.

This would not curb dividend payments set at 85 percent of profit, which were 15.9 billion shillings at the half-year mark. “There is nothing to buy so cash is being paid out as dividend. Could we move past 85 percent? Potentially.” – Reuters